With multiple reforms embracing the real estate sector in 2017, the coming year is expected to reap the long-term benefits in the form of enhanced transparency and fair deals.
India’s housing sector has undergone a slew of reforms over the recent months, leading to a paradigm shift in the sector. The demonetisation initiative in November 2016, followed by the implementation of Real Estate (Regulation and Development) Act 2016 (RERA) earlier this year, and finally the introduction of Goods and Services Act (GST) Act in July 2017, have kept both the developers and buyers apprehensive about their impact.
The lack of clarity on the policy reforms have had a profound bearing on the property market, as it is largely sentiment-driven. New launches were constricted to dismal numbers and the market saw depleting sales of housing units. The luxury market was affected the most, and the number of launches dropped considerably in this segment.
While demonetisation led to a massive cash crunch, resulting in project completion delays, the exercise regarding RERA compliance turned complicated for many. The tax reform of GST, too, led new launches to dry up further and increased the number of fence-sitters awaiting a clear verdict on GST in real estate – whether it would aid the homebuyers by bringing down prices, or lead to an increase in prices. Regarding resale properties, the option offered to developers for getting full input set-off credit on under-construction projects, that would not be applicable on ready-to-move-in flats, effectively meant higher costs for homebuyers of ready-to-move-in and resale flats. Though prices of properties have largely remained stagnant across markets in 2017, a few locations holding a large quantum of unsold inventory witnessed a slight decline, as developers vied to offload their inventory.
Nationwide implementation of demonetisation led to a shaky start to the year 2017. This led the industry into a state of turmoil, given the cash crunch in the market, and it was expected that it would take at least two quarters for the dust to settle down. Industry stakeholders opined that the slowdown in property launch and sales would be short-lived, and things would start improving with the obliteration of Benami property holders, reduction in bank interest rates and the implementation of RERA by the states.
By the end of 2017, things have not turned out as expected, as these policy changes are prolific in nature and require time to set in the real estate industry. Although the effect of demonetisation gradually receded to some extent, RERA compliance has taken its time.
While RERA came into effect on May 1, 2017, exactly a year after it was passed by Parliament, till now only a few states have established a permanent Real Estate Regulatory Authority. This has led homebuyers to maintain a wait-and-watch policy, thereby slowing down residential sales. On the GST front, the jury is still out on whether prices are going to come down. There are deliberations going on over the tax slabs to be levied and the present effective rate of GST of 12 percent on under-construction properties might change.
Expectations for 2018
Despite the slowdown in the real estate sector on account of the recent reforms, there have been some positive takeaways for the long-run. Going forward, in 2018, it is expected that the teething problems emerging around RERA and other policy changes would ease out and a new order of transparency and efficiency shall be the norm. There would be a deliberate shift of focus towards building more affordable homes or projects with smaller configurations, leading to a reduction in the overall ticket size. Further, declining interest rates and a supportive credit-linked subsidy framework would improve affordability, thus benefitting homebuyers.
These recent policy reforms would aid in bringing a lot of accountability in the real estate sector and minimise unscrupulous transactions. While GST would also provide an audit trail for better control and monitoring of the sector, RERA would ensure timely delivery of residential projects, boosting buyer confidence and would eventually bring back positivity into the market. Thus, with the project development risk being minimised by the implementation of RERA and GST, investor confidence is expected to return to the real estate sector in 2018.
The prime factors that could impact real estate in 2018 are positive economic growth of the country, improvement of infrastructure, increased private equity inflow into the sector, a balanced rate of GST for the sector – both buyer friendly as well as revenue driven, and strict adherence to RERA guidelines, amongst others. These factors shall infuse positive buyer and investor sentiment into the real estate market, abetting its growth in the forthcoming months.
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